A proposal by the New Jersey Board of Public Utilities (BPU) intended to stimulate a dramatic solar capacity increase through a portfolio of new incentives is facing opposition from the state’s ratepayer advocate, who says the plan is too expensive, and developers, who say the incentives are too low.

Released on April 9, the BPU plan, outlines a two-pronged strategy of fixed incentives for smaller projects and a competitive solicitation process for larger developments. The proposal aims to put the state on course to meet Gov. Phil Murphy’s goal of generating a total of 32 GW of solar by 2050, a nearly 10-fold increase from 3.5 GW generated today.

Whether the agency can keep the stakeholders at all satisfied with the final plan was unclear Friday after a public comment hearing that underscored the difficulty facing the BPU in trying to reconcile the vast gap between the competing interests involved.

The New Jersey Division of Rate Counsel called the BPU plan “deficient” and said it would hit ratepayers with “unnecessarily large rate increases” unless it was modified.

“The solar developers will always want more money,” said Stefanie A. Brand, director of the Division of Rate Counsel, adding that it is time to “rein in” the state’s practice of paying too much to subsidize solar developments. “The board has to make choices and has to balance the needs of the ratepayers with those of others.”

However, developers, who made up the majority of the speakers at the hearing, said the BPU’s proposed incentive structure would have the opposite effect, creating a disincentive. The volume of new projects has declined since lower incentives were introduced via a temporary proposal that took effect in December 2019. The even smaller incentives in the latest proposal would make many projects unfeasible, some developers said.

“The current program proposal threatens to collapse the solar industry,” said Tom Leyden, senior director for EDF Renewables of San Diego, expressing concern about the competitive solicitation process. He said some developers would balk at its complexity and the upfront investment needed to enter a project into a competitive process that they may lose in the end. Some would not bother entering, he said.

Holding down a small patch of middle ground, several environmental groups welcomed the attempt to curb costs. Barbara Blumenthal, research director at New Jersey Conservation Foundation, said that solar is at present “the most costly of all the available options” for generating clean energy in the state, and the proposal can help keep costs down. The BPU’s proposed competitive strategy especially would help do that, while helping the sector grow, she said.

In a statement submitted to the BPU, the New Jersey Sierra Club also backed the competitive solicitation strategy, saying that, with some adjustments, the proposal “will expand the amount of solar that would be built in New Jersey, including grid-scale, net metering and community solar,” while creating green jobs.

Deciding Incentive Levels

The hearing was one of six scheduled in late April and early May to obtain public input on the BPU’s “straw” proposal for regulating the solar sector but was the only “legislative style” meeting overseen by the BPU board, rather than agency staff members.

The proposal, known as the “successor” program, outlines a two-tier system in which smaller projects, such as residential projects and net-metered, non-residential projects of 2MW or less, could receive fixed incentives for each megawatt hour of solar electricity produced for 15 years. Net-metered projects are those in which the energy generated is first used by the customer and anything unused is then sent to the grid. The size of the proposed incentives varies, but most projects would receive $85/ MWh of energy, including residential and commercial projects that are net metered. Community solar projects for low and moderate income (LMI) customers would get an incentive of $90/MWh, while non-LMI community solar projects would get an incentive of $70/MWh.

In its document explaining the proposal, the BPU said that the benefit of the fixed incentive approach is that “consumers and financers all have a clear understanding of the expected value of the incentives associated with each MWh of generation by a given project.”

Larger projects — grid-supply installations and net-metered non-residential arrays above 2 MW — would have to take part in a competitive solicitation process, with participants bidding the amount of incentive they would need to receive to complete the project.

Brand welcomed the competitive bidding initiative but said the strategy of leaving the BPU to set incentive levels would make it vulnerable to industry pressure.

“Incentive payments will be established through stakeholder processes like this one that are consistently dominated by a large number of solar developers,” she said. “Collectively, this herd approach, coupled with predefined incentive payments that will be dominated by industry interests, is the furthest thing one can get from the competitive market approach.”

Ramping Up Solar Capacity

The search for a modified path forward began with Murphy’s signing of the Clean Energy Act in 2018. The law required the BPU to shut down its Solar Renewable Energy Certificate (SREC) Program when solar installations reached 5.1% of the state’s electricity sales, in part, because it was seen as unnecessarily expensive. Under that program, the state awarded an SREC when a project generated 1 MWh of electricity, and the recipient could sell the SREC for the going rate on a traded market. Some observers felt the volatile market prices created uncertainty about the rate of return on investments in the solar market.

The program hit the 5.1% threshold in April 2020, when the market rate for an SREC was about $200. The BPU replaced it with a temporary transition program, which is still in place. Instead of SRECs, projects now earn a Transition Renewable Energy Certificate (TREC) for each MWh of power they generate, with the rate paid for a certificate set by the state.  For instance, the TREC for a landfill or brownfield project is worth $152/MWh, while a net-metered residential rooftop installation is worth $91.20 per MWh.

The BPU proposal under consideration would be a permanent successor to the TREC program, yet some developers say that it sets some incentive levels well below what would be needed to stimulate enough new solar projects to meet the state’s ambitious goals.

Fred DeSanti, executive director of the New Jersey Solar Energy Coalition, a trade group of developers, told the hearing that the state’s commercial and industrial rooftop and ground mount solar project business is down 60% over last year. He blamed the drop, which occurred as the COVID 19 pandemic unfolded, on the decline from a SREC of about $200 in December 2019 to 2020’s TREC of $152 for rooftops and $92 for ground mounted projects, which made up most of the business loss.

Those segments “are going to be nearly eliminated” under the BPU’s new proposal, which would set the incentive at $85, he said.

Mark F. Schottinger, general counsel for developer Solar Landscape of Asbury Park, said the reduction in incentives for a warehouse rooftop project from $129 to $85, and lower for some community solar projects, would severely undermine a property owners’ interest in participating in the project.

“We’ve just finally convinced the roof owners to let us lease their roofs for the next 20 years, and we cut that by 30%?” he said. “That’s going to be a tough sell.”

Melissa Sims, a managing member of Ecological Systems of Monmouth County, said the BPU proposal would squeeze the residential solar sector, which her company is most focused on. She said sales have fallen by 70% since the TREC incentives replaced SRECs a year ago.

“I think it’s safe to say $85 is not going to work for any segment of solar,” she said, referring to the fixed incentive offered for most small projects in the BPU proposal. “I really think for the residential market, we need to be at least $100 [per MWh] because I think that $100 gets a six- to seven- year payback, which I think is a reasonable expectation.”